Warning after cabin crew member takes out Dh367,000 bank loan to invest in cryptocurrencies - only to see value plummet

An employee inspects machines for the production of bitcoins and lightcoins at a Russian crypto 'mining' centre in Russia. AFP

An expat who took out a huge loan to invest it in cryptocurrencies - only to lose most of his cash - has warned others of the stark risks involved.

The airline cabin crew member, 32, invested a Dh367,000 bank loan after being lured by the prospect of quick returns.

But the value has since dropped to just over Dh110,000.

The cryptocurrency market has suffered a huge slump this year, wiping millions of dollars off the value of investments.

The Frenchman admits he did not take financial advice before investing and heard about the get-rich-quick scheme on a work WhatsApp group.

He first shared details of his crippling bank loan repayments - which account for two thirds of his Dh12,000 monthly salary - in a Reddit post, and hopes his experience will be a lesson to others.

"Still three-and-a-half-years to go until I'm freed,' he wrote on the site, referring to the lengthy repayment schedule still looming large.

He told The National that initial success in investing small amounts of his own salary led to overconfidence.

“I invested my own money in September last year and it went very well. I made three or four times more than I had put in,” said the man, who lives in Abu Dhabi.

“I decided to take a loan out at the end of the year to invest more money into it.”

He approached a bank who agreed to give him the loan and invested the full amount in several cryptocurrencies – Lumen (XLM), Neo, Ripple (XRP), Ethereum (ETH) and Litecoin (LTC). All are alternatives to Bitcoin.

“I made over Dh100,000 in 10 days and everything looked great,” he said.

“But I did not cash out then. I had no experience in the stock market and just thought the money would grow.

“I earn around Dh12,000 a month and am paying back Dh8,000 of that to the bank,” he said.

He is clinging to the hope the investment value will rise again.

“I am not going to invest any more but I am going to keep what I have where it is and hopefully it will go back in value,” he said.

Financial experts have urged the public to be wary when it comes to investing in cryptocurrencies.

“I generally tell people to avoid them unless they are just investing an amount that they are willing to lose,” said Keren Bobker, a financial adviser with Holborn Assets and columnist for The National.

“There are many different cryptocurrencies but all are high-risk investments and most people are really not comfortable with this level of risk and volatility – which is often off the scale.

“People want to make money and there have been loads of coverage about people making large sums very quickly, so I can see why many are tempted.

“Do the majority actually understand what they are doing? Do people actually know if anything underpins cryptocurrencies and the real risks?

“I doubt it, not least as there is little to no regulation, no protection and no explanation of risks before purchase."

Ms Bobker said the UAE Central Bank is among those to issue warnings against unwise investments in crypto, but that some people are quickly taken in by sales pitches.

“There are many people in the UAE with little financial knowledge who are easily swayed by sales patter and the bright lights of easy money and that, coupled with insufficient regulation, means we see far too many scams and tales of people losing their money.”

Monark Modi, chief executive of Bitex UAE, a company that acts as a cryptocurrency and digital trading wallet, said many ordinary investors are risking everything.

“People are becoming interested and want to move away from the stock market but I would say at least 50 per cent of people making cryptocurrency investments are just guessing,” he said.

Christopher Fernandez, founder of Dubai-based Block Gemini, a blockchain development and consultancy agency, said the currency market across the board is highly volatile at present.

He pointed to the example of the recent financial crisis in Turkey that saw the national currency, the lira, plummet by almost 40 per cent, during the same period Turkish Bitcoin increased in value by 63 per cent. One Bitcoin is currently valued at Dh25,712.

“I would also never advise anyone to invest more than five per cent of their portfolio,” he said.

"Getting rich fast is one of the things that people have in mind when they invest in new technologies and that mentality will lead to losses, especially if you don't know what you're doing."

Blockchain is an encrypted online database that also acts as a ledger for all transactions in digital currency.